A Perfect Financial Storm

Abstract

The changes in Japan’s economy as it has moved from historic high growth to full industrial and demographic maturity are nowhere more striking than in the sourcing, structure, and management of corporate finance. These changes, taking place from the mid-1990s, were driven by an extraordinary combination of low and erratic growth rates of the economy, long-continued deflationary price drops, massive declines in asset values, and sharp changes in accountancy rules — in finance, a perfect storm. Companies have weathered the storm by a focus on reducing debt, with bank borrowings very much lessened and other sources of finance more widely used. Careless and unmanaged proliferation of subsidiaries and affiliates has been corrected. Holding company structures allow establishing financial structures for separate businesses. Pension obligations are fully recognized and asset values marked to market value. All this at considerable cost; all made necessary by a brutally difficult economic environment and changed regulations; all now largely accomplished as a new era begins.